B2C OIDAR Service Tax Exemption Withdrawn; Jurisdiction with LTU Bangalore: CBEC

CBEC Withdraws ‘Service Tax Exemption’ for cross border B2C OIDAR services provided online/ electronically from a non-taxable territory/ outside India to consumers in taxable territory in India; LTU Bangalore to have Exclusive Jurisdictions; Place of Provision of Services Rules Amended

To provide a level playing field to Indian service providers, the exemption given to service providers located in foreign territory but providing taxable online information and database access or retrieval [OIDAR] services including electronic services in India, is being withdrawn with effect from 1st December, 2016

With a view to provide a level playing field to ‘Indian Service Providers’ providing taxable ‘online information and database access or retrieval [OIDAR] services’ including electronic services in India, the service tax exemption has been withdrawn w.e.f. 1 Dec. 2016 for such services ‘provided in India’ by service providers located outside India or in foreign territory. Thus cross border ‘business to consumer [B2C]’ OIDAR services provided by a foreign service provider to a person in India will become taxable from 1 Dec. 2016 onwards.

The salient features of this withdrawal of service tax exemption/ levy of service tax on foreign service providers are as under:

i) A simplified online mechanism of taking registration has been prescribed and registration will be deemed to be granted online on submission of registration application.

ii) A simplified mechanism of online payment of taxes and online filing of returns is being prescribed.

CBEC has clarified on issues relating to withdrawal of service tax exemption for OIDAR services on B2C (business to consumer) basis in the case of foreign service providers, w.e.f. 1 Dec. 2016. Besides, CBEC has notified LTU Bangalore with Exclusive Service Tax Jurisdiction regarding B2B OIDAR Services and has amended Place of Provision of Services Rules, as under:

A. CBEC’s Circular on FAQs/ Clarifications about issues relating to B2C OIDAR Services

1. At present services received in taxable territory in India from outside the taxable territory by Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession are exempted [cross border B2C (business to consumer) services provided in taxable territory]. On the other hand, services received by other persons in taxable territory from non-taxable territory [cross border B2B (business to business) services] are taxable under reverse charge i.e. service recipient in taxable territory pays tax. Further, in view of Place of Provision of Service Rules, 2012 rule 9(b), with respect to online information and database access or retrieval services [OIDAR], the place of supply is location of service provider and thus such cross border B2B/ B2C services provided by a person in non-taxable territory and received by a person in taxable territory are outside the levy of service tax.

2. In this context, kind attention is invited to notification No. 46/2016-ST, 47/2016-ST, 48/2016-ST and 49/2016-ST all dated 9 Nov. 2016. These notifications shall come into force with effect from 1st December 2016, whereby service tax would be chargeable on online information and database access or retrieval [OIDAR] services provided by any person located in non-taxable territory and received by Government, local authority, governmental authority, or an individual in relation to any purpose other than commerce, industry or any other business or profession [cross border B2C (business to consumer) OIDAR services provided in taxable territory]. Online information and database access or retrieval [OIDAR] services have been re-defined in Service Tax Rules, 1994 to include electronic services. In this regard, there may be many questions in the mind of service providers in the non-taxable territory, recipients in the taxable territory and other stakeholders, in respect of various aspects pertaining to the taxation of such services. Accordingly, the following clarifications are issued:-

1. What is taxable territory? 

Taxable territory has been defined in section 65B of the Finance Act, 1994 as the territory to which the Finance Act, 1994 applies i.e. the whole of territory of India other than the State of Jammu and Kashmir.

“India” includes not only the land mass but its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976; the sea-bed and the subsoil underlying the territorial waters; the air space above its territory and territorial waters; and the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.

2. What do we mean by cross border B2C services provided in the taxable territory?

It means those services where the service provider is in non-taxable territory and the service recipient is Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession (located in the taxable territory in India) and the place of provision of such services as determined by the application of Place of Provision of Service Rules, 2012, is in the taxable territory in India.

3. Are all cross border B2C services provided in the taxable territory made taxable w.e.f. 1 Dec. 2016?

No. Only cross border B2C OIDAR services provided in the taxable territory have been made taxable w.e.f 1 Dec. 2016. Other cross border B2C services continue to be exempted. Further, cross-border B2B services have been taxable since prior to 1 Dec. 2016, under reverse charge mechanism.

4. Do OIDAR services have the same meaning as defined in the Place of Provision of Service Rules, 2012? If no, what do we mean by OIDARservices?

No. The existing definition of OIDAR services given in PoPSR, 2012 [clause (l) of rule 2] has been redefined to assign the OIDAR services the same meaning as assigned to it in the clause (ccd) of sub-rule 1 of rule 2 of the Service Tax Rules, 1994 [inserted vide notification No. 48/2016-ST].

5. What do we mean by Cross Border B2C OIDAR services provided in taxable territory in India? 

Cross border B2C OIDAR services means online information and database access or retrieval services provided by a person located in non-taxable territory to a ‘non assessee online recipient’ in taxable territory in India.

‘Non assessee online recipient’ has been defined in Service Tax Rules, 1994 [rule 2(1)(ccba)] to mean Government, a local authority, a governmental authority or an individual receiving OIDAR services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory [notification No. 48/2016-ST refers].

6. Is there any change regarding cross borderB2B [business to business] services provided in India? Will the cross border B2B OIDAR services provided in taxable territory in India to a business entity be taxed under forward charge or reverse charge? 

No. The current dispensation of taxing cross border B2B services under reverse charge mechanism i.e. the recipient business entity pays service tax, continues.

Cross border OIDAR services provided in taxable territory in India to a business entity will be taxed under reverse charge i.e. the business entity receiving the services will pay tax under reverse charge.

7. Service recipient in taxable territory receiving cross border B2C servicesServiceTaxable/ ExemptedTaxing MechanismPerson liable to pay tax
Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or professionOIDARTaxable

[w.e.f. 01.12.2016]

Forward chargeService provider in non-taxable territory
Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or professionOther than OIDARExemptedExemptedExempted
Other than Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or professionAll including OIDARTaxableReverse ChargeService recipient in taxable territory

8. What are the changes made in statutory/legal provisions and when are these coming into effect? 

i) Notification Nos. 46/2016-ST, 47/2016-ST, 48/2016-ST and 49/2016-ST have been issued on 9 Nov. 2016 to effect these changes.

ii) These changes will however, come into force with effect from 1 Dec. 2016.

9. What are the changes made in the Place of Provision of Services Rules, 2012 [PoPSR] and what are its implications? 

i) Vide notification No. 46/2016-ST, the Place of Provision of Services Rules, 2012 [PoPSR] are being amended with effect from 1 Dec. 2016,-

a) to assign the OIDAR services the same meaning as assigned to it in the clause (ccd) of sub-rule 1 of rule 2 of the Service Tax Rules, 1994 [inserted vide notification No. 48/2016-ST].

b) to amend proviso of rule 3 of PoPSR so as to make the proviso inapplicable to OIDARservices.

c) to omit the clause (b) of rule 9 of PoPSR.

ii) As a result, default rule 3 of PoPSR will be applicable in such cases from 1st December, 2016, whereby the place of provision of a service is the location of recipient of services i.e. cross border B2B/ B2C OIDAR services received by a person located in taxable territory will be leviable to service tax in the taxable territory. In order to avoid any confusion, the existing proviso to rule 3 of PoPSR has been made inapplicable for OIDAR services.

10. Even though the cross border OIDAR services are being made leviable to service tax with effect from 1 Dec. 2016, will these services not get exempted by means of any existing exemption?

Vide notification No. 47/2016-ST, the existing exemption [Sl. No. 34(a) of notification No. 25/2012-ST] to services provided by a person located in a non- taxable territory and received by Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession, will not be available for OIDAR services received by such persons w.e.f 1 December, 2016. OIDAR services have been assigned the same meaning as assigned to it in the clause (ccd) of sub-rule 1 of rule 2 of the Service Tax Rules, 1994 [inserted vide Notification no. 48/2016-ST].

11. What is the definition of OIDAR services?

Online information and database access or retrieval [OIDAR] services have been defined in Service Tax Rules, 1994, rule 2(1)(ccd) to mean services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology and includes electronic services such as,- 

i) advertising on the internet; 

ii) providing cloud services; 

iii) provision of e-books, movie, music, software and other intangibles via telecommunication networks or internet; 

iv) providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network; 

v) online supplies of digital content (movies, television shows, music, etc.); 

vi) digital data storage; and 

vii) online gaming.

12. Do OIDAR services include all services mediated by information technology over internet or electronic network?

Using the internet, or some electronic means of communication, just to communicate or facilitate outcome of service does not always mean that a business is providing OIDAR services.

13. What services would NOT be considered as OIDAR services?

Indicative list of non-OIDAR services 

i) Supplies of goods, where the order and processing is done electronically

ii) Supplies of physical books, newsletters, newspapers or journals

iii) Services of lawyers and financial consultants who advise clients through email

iv) Booking services or tickets to entertainment events, hotel accommodation or car hire

v) Educational or professional courses, where the content is delivered by a teacher over the internet or an electronic network (in other words, using a remote link)

vi) Offline physical repair services of computer equipment

vii) Advertising services in newspapers, on posters and on television

14. What type of services will be covered under OIDAR services?

OIDAR services covers services which are automatically delivered over the internet, or an electronic network, where there is minimal or no human intervention. In practice, this can be either:

i) where the provision of the digital content is entirely automatic eg, a consumer clicks the ‘Buy Now’ button on a website and either  the content downloads onto the consumer’s device, or  the consumer receives an automated e-mail containing the content

ii) where the provision of the digital content is essentially automatic, and the small amount of manual process involved doesn’t change the nature of the supply from an OIDAR service

All ‘electronic services’ that are provided in the ways outlined above are OIDAR services.

15. Examples of services whether or not OIDAR services

Service

Whether Provision of service mediated by information technology over the internet or an electronic networkWhether it is Automated and impossible to ensure in the absence of information technology

OIDAR service

Pdf document manually emailed by provider

Yes

No

No

Pdf document automatically emailed by provider’s system

Yes

Yes

Yes

Pdf document automatically downloaded from site

Yes

Yes

Yes

Stock photographs available for automatic download

Yes

Yes

Yes

Online course consisting of pre-recorded videos and downloadable pdfs

Yes

Yes

Yes

Online course consisting of pre-recorded videos and downloadable pdfs plus support from a live tutor

Yes

No

No

Individually commissioned content sent in digital form eg,

photographs, reports, medical results

Yes

No

No

16. Indicative List of OIDAR services 

i) Website supply, web-hosting, distance maintenance of programmes and equipment;

(a) Website hosting and webpage hosting;

(b) automated, online and distance maintenance of programmes;

(c) remote systems administration;

(d) online data warehousing where specific data is stored and retrieved electronically;

(e) online supply of on-demand disc space.

ii) Supply of software and updating thereof;

(a) Accessing or downloading software (including procurement/accountancy programmes and anti-virus software) plus updates;

(b) software to block banner adverts showing, otherwise known as Banner blockers;

(c) download drivers, such as software that interfaces computers with peripheral equipment (such as printers);

(d) online automated installation of filters on websites;

(e) online automated installation of firewalls.

iii) supply of images, text and information and making available of databases;

(a) Accessing or downloading desktop themes;

(b) accessing or downloading photographic or pictorial images or screensavers;

(c) the digitised content of books and other electronic publications;

(d) subscription to online newspapers and journals;

(e) weblogs and website statistics;

(f) online news, traffic information and weather reports;

(g) online information generated automatically by software from specific data input by the customer, such as legal and financial data, (in particular such data as continually updated stock market data, in real time);

(h) the provision of advertising space including banner ads on a website/web page;

(i) use of search engines and Internet directories.

iv) supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events;

(a) Accessing or downloading of music on to computers and mobile phones;

(b) accessing or downloading of jingles, excerpts, ringtones, or other sounds;

(c) accessing or downloading of films;

(d) downloading of games on to computers and mobile phones;

(e) accessing automated online games which are dependent on the Internet, or other similar electronic networks, where players are geographically remote from one another.

v) supply of distance teaching.

(a) Automated distance teaching dependent on the Internet or similar electronic network to function and the supply of which requires limited or no human intervention, including virtual classrooms, except where the Internet or similar electronic network is used as a tool simply for communication between the teacher and student;

(b) workbooks completed by pupils online and marked automatically, without human intervention.

17. Who shall be liable to collect and discharge the service tax liability in cases of provision of cross border B2C OIDAR services?

Service providers providing OIDAR services to a non-assesse online recipient in taxable territory would be responsible for collection of service tax and remitting the same to the Government of India. However, the service provider in the non-taxable territory may appoint an agent in the taxable territory who will be person liable for paying service tax.

…contd….

CBEC Circular No. 202/12/2016-Service Tax dt. 9 Nov. 2016 F.No. 354/149/2016-TRU

B. Exclusive Service Tax Jurisdiction with LTU Bangalore in the case of B2B OIDAR Services

G.S.R.—(E).- In exercise of the powers conferred by clause (b) of section 2 of the Central Excise Act, 1944 (1 of 1944), read with clause (55) of section 65B of the Finance Act 1994 (32 of 1994), rule 3 of the Central Excise Rules, 2002 and rule 3 of the Service Tax Rules, 1994, the Central Board of Excise and Customs hereby makes further amendments in the notification No. 20/2014-Service Tax, dated the 16th September, 2014, published vide G.S.R. number (E), 648 dated the 16th September, 2014, namely :-

In the said notification, after the proviso, the following shall be inserted, namely:-

“Provided further that in case of online information and database access or retrieval services provided or agreed to be provided by a person located in non-taxable territory and received by a non-assessee online recipient, no officer specified in column (2) of the Table 3 and no officer subordinate to him, other than the officer specified in column (2) against S.No (23) of the said Table and all the officers subordinate to him, shall have the powers under Chapter-V of the Finance Act, 1994 (32 of 1994) and the rules made there under.

Explanation.- For the purposes of this notification,-

(a) “online information and database access or retrieval services” has the same meaning as assigned to it in clause (ccd) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994;

(b) “non-assessee online recipient” has the same meaning as assigned to it in clause (ccba) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994.”

Note:-The principal notification was published in the Gazette of India, Extraordinary, vide notification No.20/2014- Service Tax, dated the 16th September, 2014, vide number G.S.R. 648 (E), dated the 16th September, 2014 and last amended vide notification No. 1/2015 – Service Tax, dated the 20th January, 2015 vide number G.S.R. 44 (E), dated the 20th January, 2015.

CBEC Notification No. 50/2016-Service Tax dt. 22 Nov. 2016 F. No. 354/149/2016-TRU

C. CBEC Amends ‘Place of Provision of Services Rules’ in connection to B2C OIDAR Services

G.S.R.—(E).- In exercise of the powers conferred by sub-section (1) of section 66C and clause (hhh) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules to further amend the Place of Provision of Services Rules, 2012, namely :-

1. (1) These rules may be called the Place of Provision of Services (Second Amendment) Rules, 2016. (2) They shall come into force on the 1st day of December, 2016.

2. In the Place of Provision of Services Rules, 2012, in rule 2, in clause (q), after the words “include broadcasting”, the words “and online information and database access or retrieval” shall be inserted.

Note:– The principal rules were published in the Gazette of India, Extraordinary, vide notification No. 28/2012 – Service Tax, dated the 20th June, 2012 vide number G.S.R. 470 (E), dated the 20th June, 2012 and last amended by notification No.46/2016 – Service Tax, dated the 9th November, 2016 vide number G.S.R. 1055 (E), dated the 9th November, 2016.

CBEC Notification No. 51/2016 Service Tax dt. 30 Nov. 2016 F. No. 354/149/2016-TRU

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